Creditors are set to vote for the new owner of Tongaat Hulett on Wednesday, with Mozambican agricultural and consumer group RGS Group squaring off against Robert Gumede’s Vision Consortium after RCL Foods withdrew its latest legal challenge.
RCL Foods, which owns Selati sugar, filed papers on Friday to interdict the Vision offer from being voted for on Wednesday, but withdrew the legal challenge on Sunday afternoon after having its demands on sugar industry levies met.
This means the vote for the new buyer will go ahead, with bankers, suppliers — which are owned billions — and the Industrial Development Corporation (IDC) eligible to cast their ballots.
Tongaat has been in business rescue for 14 months and the IDC, which provided about R2.3bn in financing, requires that a vote to choose a buyer be held by January 11. The IDC funding that is being used to run the business will expire at the end of February, so it is imperative a new buyer is chosen urgently if the sugar producer is to stay afloat.
On Wednesday, voters will choose between the two offers.
In total, Tongaat has R13bn in debt, much that will not be repaid, with bankers owed about R8bn. It appears that bankers, which have over 65% of the vote, could get more from the Vision offer as detailed in the new business rescue plans published last week.
The Vision group has offered R4.1bn to lenders in a debt-for-equity swap, with a further R3.6bn in debt to be restructured and some of it paid back to the bankers over time. It would leave 2.7% of the company owned by shareholders and it would likely remain listed on the JSE.
RGS, owned by the politically connected Gulamo family from Mozambique, has offered bankers R3.75bn for their claims in a straight out acquisition that would leave 5% of the company owned by existing JSE shareholders.
RGS, however, has offered more money to the ordinary unsecured creditors, which include the SA Revenue Service (Sars) and equipment, water, agricultural and vehicle suppliers. It has also offered R500m in working capital to run the business, which Vision has not.
RGS has offered ordinary suppliers an upfront payment of R75,000 for their debt and then up to 40c per rand owed. It will spend a maximum of R425m on the R2.59bn in unsecured debt. Vision has only offered R75m in total for these claims by ordinary suppliers.
Both business rescue plans detail how saving Tongaat is essential as it employs 2,563 staff in SA and supports over 20,000 farmers who sell cane to it.
“It is beyond question that a successful rescue of Tongaat’s SA Sugar ... will avoid a possibly widespread ... economic and human catastrophe,” Vision’s plan states.
The vote to buy the business was supposed to take place on December 14, but was interdicted via a court application by RCL and the SA Sugar Association (Sasa) in a fight over sugar industry levies.
The new business rescue plans published last week attempted to address RCL’s and Sasa’s concerns over industry levies.
The sugar levy paid to Sasa is part of a redistributive mechanism in a complex, highly regulated industry that ensures all farmers get the same price per tonne of sugar and larger mills like Tongaat subsidise smaller players.
Tongaat did not pay levies from October 28 2022 to end-March 2023 and it owes Sasa more than R1.1bn. RCL is owed R234m in levies. Tongaat went to court to have the levies declared in breach of the Companies Act during business rescue but lost this case, meaning it has to repay over R1.1bn.
Tongaat is appealing the judgment.
The two bidders have committed to paying Sasa the outstanding levies, which equate to just over R525m when money owed to Tongaat is taken into account, according to the plans. RGS said it would pay the levy fee upfront without further legal action.
Vision said last week it will pay this money into a trust and it will only be paid over to Sasa if Tongaat loses its appeal, a process that could take years. It is this suggestion that RCL, on behalf of the industry, took issue with, causing it to file papers on Friday to have Vision’s plan declared unlawful.
RCL withdrew its latest challenge on Sunday once it was agreed by Vision that should it win the bid, the levies would be repaid immediately.
RCL said it “had taken the legal action in the best interest of the broader sugar, industry including our small-scale growers, who are not in a position to protect their interests through litigation”.
Vision’s new offer to purchase the business, released on January 2, warned that if there are continued legal challenges delaying the purchase, then the business rescue could fail “with the almost inevitable consequence of liquidation”.
“The business rescue of Tongaat has been bedevilled by numerous challenges, not least of which has been the ongoing threat and or institution of legal proceedings aimed at interdicting the business rescue process, made by various groups and/or entities with frequently divergent interests.”
RCL said it did not want to undermine the business rescue “RCL believes that Tongaat’s future viability is critical but, at the same time, that it is vital to ensure that the business rescue process does not undermine the entire industry.”
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